States proposing cigarette tax cuts

Bucking a national trend of raising cigarette taxes, New Hampshire, New Jersey and Rhode Island have considered reducing theirs, hoping to draw smokers from other states and increase revenue.

Supporters argue reducing the tax by a dime would make New Hampshire more competitive with Maine, Vermont and Massachusetts, while opponents say that even if the state experienced higher sales as a result it still would lose millions of dollars in revenue.

It's very unusual for states to lower the tax, University of Illinois at Chicago economics professor Frank Chaloupka says. The increase in sales isn't enough to offset the drop in state tax revenue, he says.

Instead of lowering the tax, states have enacted 100 increases over the past decade, he says.

"New Hampshire has been going in the same direction as the rest of the country, basically forever," Chaloupka said.

New Hampshire raised its tax repeatedly since Democratic Gov. John Lynch took office in 2006, increasing it from 52 cents per pack in 2005 to $1.78 currently.

That changed Thursday, when the state House passed a bill that would cut the rate 10 cents to $1.68 per pack in hopes of attracting smokers from surrounding states with higher taxes. Rhode Island's bill would cut its tax by $1, to $2.46 per pack. New Jersey last year considered reducing its tax 30 cents, to $2.40 per pack, but hasn't followed through on it.

New Hampshire Senate Finance Chairman Chuck Morse says he believes the Senate will support the cut.

"I think it's a positive sign for business. I think it will provide revenue in the long run," said Morse, a Republican who lives in Salem.

If approved by the Senate, the cigarette tax cut bill would go to the governor, who doesn't support it. But the House and Senate, led by Republicans, could override a veto by the governor, saving cigarette smokers 10 cents a pack.

Smoker Aaron Evans stopped Thursday at a convenience store in Haverhill, Mass., for a sandwich and a pack of Marlboro cigarettes. The pack cost him $7.13. A couple of miles away, a bigger pack of the same smokes would cost him $5.99 at a market in New Hampshire, which already has significantly lower taxes than Massachusetts.

Evans, 25, welcomed any move to make smokes cheaper but said a dime a pack wouldn't make him change his buying habits.

"You gotta average it out," he said. "I could either drive all the way over to New Hampshire and waste the gas - it kind of evens it out."

New Hampshire has historically looked to export its tax burden - and any resulting health costs - to other states through taxes on products such as tobacco and alcohol it sells to its residents.

"That's always been the way we run our tax structure," said Mike Rollo, spokesman for the American Cancer Society in New Hampshire. "We've always tried to tax people from out of state."

Danny McGoldrick, research director for the Campaign for Tobacco-Free Kids, said other states aren't cutting their tax rates in these tough fiscal times because they need the money. Raising the tax, he said, produces revenue despite resulting in a desired decrease in the number of smokers.

The New Hampshire Grocers Association has consistently criticized the tax increases as hurting small businesses, particularly along New Hampshire's state line.

Association President John Dumais said Thursday that cutting the rate a dime would cost the state tobacco tax revenues but would result in an offsetting increase in state taxes collected from people renting hotel rooms, eating in restaurants, buying alcoholic beverages, buying lottery tickets and buying gasoline. The net result would be no loss of revenue to the state but an incentive for tourists to visit the state to shop, he said.

"People coming from out of state are going to have an empty gas tank. They're going to be hungry. They're going to be tired," he said. "It's going to help every business."

State Rep. Patrick Abrami, R-Stratham, made that argument successfully during the House debate.

"We have reached the tipping point," he said. "We are hurting our merchants. We are losing sales on our borders."

But state Rep. Christine Hamm, a Hopkinton Democrat, called the move "fiscally stupid."

"No state has cut their tobacco tax and seen a revenue increase," she said.

The House voted 236-93 to send the bill to the Senate anyway.

Lynch spokesman Colin Manning, who said the governor doesn't support the tax cut, pointed out New Hampshire's tax rate already is the lowest in the region.

Massachusetts' tobacco tax rate is $2.51 per pack; Maine's is $2; Vermont's is $2.24; Connecticut's is $3; and Rhode Island's is $3.46. Unlike the other states, New Hampshire has no sales tax.

Manning said the House is considering making much deeper budget cuts than Lynch proposed "and now with this action today it raises the question of what else they are going to cut."